Japan's Softbank Corp. bought a minority stake Wednesday in Tradescape.com, a New York-based day-trading software firm, in a deal that lends credibility to the widely criticized day-trading industry.
Softbank has made a series of high-profile investments in online and financial companies, including stakes of 26% in Yahoo Inc. and 27% in E-Trade Group Inc. This month, Softbank teamed up with the Nasdaq Stock Market to launch a new stock market in Japan.
The latest deal appears to be a show of confidence in the "intelligent-agent" software developed by Tradescape.com and rival firms. The software scans a variety of trading systems to find the most favorable price at any moment for an investor trying to buy or sell stock.
The firms hope the software will prove popular among both individual investors trading over the Internet and institutional investors such as mutual funds.
"It serves as a validation point for our business model and our business strategy," said Omar Amanat, Tradescape.com's 26-year-old chief executive, who founded the company two years ago.
J.W. Childs Associates, a Boston-based leveraged-buyout firm, also has taken a minority stake, Tradescape.com said. Together, Softbank and J.W. Childs invested $40 million.
Tradescape.com also said it will acquire rival Momentum Securities Inc. of Houston to form the country's largest day-trading firm.
The deals also indicate that the distinction between day trading, typified by hyper-aggressive individuals working from the offices of specialized brokerages, and Internet investing, in which individuals trade from their homes or offices, is blurring as day-trading tools become available to small investors trading over the Net.
Tradescape.com will have more than 1,000 day traders, representing more than one-quarter of the roughly 4,000 on-site day traders nationwide, said Jim Lee, a Momentum co-owner who will run the combined company's day-trading operation.
The deal is likely to spur consolidation among day-trading firms, 10 of which control about 85% of the industry, Lee said.
Tradescape.com also plans to open a series of coffee shops with Internet access and advanced tools for stock traders, Amanat said. The first is scheduled to open in New York in the fall.